Catching-Up Process and Gross Domestic Product Synchronisation in the European Union: Bayesian Shrinkage Estimation and Distance-Based Approach
Catching-Up Process and Gross Domestic Product Synchronisation in the European Union: Bayesian Shrinkage Estimation and Distance-Based Approach

Summary/Abstract: The convergence and the business cycle synchronisation in the European Union (EU-28) remains a topical issue as recent economic crisis has affected GDP growth of each member country. The aim of the paper is to test a real convergence between the European countries and to analyse the synchronisation of their GDP per capita. Firstly, the speed of β-convergence is tested using Bayesian Shrinkage Estimators allowing for heterogeneity in panel data model. Secondly, we estimate the cluster dendrogram, which offers the categorisation of countries into clusters according to the similarities of their GDP growth rates. Thirdly, a distance-based method is applied in order to analyse a temporal dynamics of GDP per capita synchronisation in the whole EU-28. Bayesian Shrinkage Estimators reveal rather the heterogeneity of the speed of convergence. The distance￾based approach concludes that the overall convergence in the EU-28 prevailed up to 2007, but the crisis caused a divergence of their GDP per capita. Despite a recent temporal convergence, average distances between GDP per capita of all EU-28 countries remain important and are still higher compared to the pre-crisis period.

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